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Stobart Group Ld LSE:STOB London Ordinary Share GB00B03HDJ73 ORD 10P
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Esken Limited Disposal

20/04/2021 7:00am

UK Regulatory (RNS & others)

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RNS Number : 9619V

Esken Limited

20 April 2021

This announcement contains inside information for the purposes of article 7 of the Market Abuse Regulation (EU) 596/2014 as it forms part of domestic law by virtue of the European Union (Withdrawal) Act 2018.

20 April 2021


('Esken' or 'the Company')

Notification of Class 2 transaction - Sale of Stobart Air and Carlisle Lake District Airport

Esken, the aviation and energy infrastructure group, announces that it has signed an agreement for the sale of its entire shareholdings in Stobart Air Unlimited Company ('SA') (which operates regional flights under a franchise agreement for Aer Lingus) and Stobart Air (UK) Limited, the owner of Carlisle Lake District Airport ('CLDA') to Ettyl Limited (Ettyl). The sale is subject to certain change of control and bank facility consents and is expected to complete by early May 2021.

Background to the transaction

Esken took the decision in April 2020 to buy back its shareholding in SA and the aircraft leasing company Propius from the Administrator of Connect Airways Limited ('Connect') to take control of various legacy guarantees and obligations which the Company had and which predated the sale of those operations to Connect in January 2019. The buy-back was a necessary action at the time in order to mitigate the potential impact of these guarantees being called and to allow the Company to conclude a refinancing of the business in order to mitigate the impact of the COVID-19 pandemic on Esken and its subsidiaries. It was Esken's stated intention to seek a new owner of these businesses by 28 February 2021 following an anticipated extension of the Aer Lingus Franchise when it expires in December 2022. A combination of the impact of the extended lockdowns halting most flight operations for the period since acquisition and the decision by Aer Lingus in November 2020 to award preferred bidder status for the franchise extension to another party has led to a protracted process to achieve the stated objective.

Structure of the transaction

Ettyl, an Isle of Man based company backed by private investors, has agreed to acquire Esken's economic interests in Everdeal 2021 Limited and Everdeal Employees 2019 Limited, both holders of shares in Stobart Air Unlimited Company (collectively referred to as 'SA'), for GBP2 plus the value of any cash on the balance sheet payable at completion together with a contingent consideration of GBP7.5 million payable upon and to the extent of the occurrence of certain trigger events at any point up to 1 July 2024. Any contingent consideration will become payable in three equal instalments over 18 months from the date of any trigger event. The sale of the businesses is expected to complete by early May 2021.

Esken will make a payment on completion of up to GBP9.4m and will be responsible for the settlement of pre-completion liabilities totaling GBP25.8million of which GBP19.1 million are the subject of pre-existing parent company guarantees. These sums represent unpaid creditors of GBP12.4 million, which will be paid as they fall due in the months ahead and maintenance reserves of GBP13.4 million, which will be paid towards maintenance obligations as they arise over the remaining term of the aircraft leases. Ettyl will take responsibility for operational cash outflows from 1 April 2021 and these will be set-off against sums due by Esken under the SA sale agreement.

Prior to the completion of the sale of SA, Esken will take back 100% ownership of Propius, an aircraft leasing company, for GBP1. Esken will retain responsibility for the continuing lease obligations of Propius under the existing lease arrangements until April 2023 ('Lease End Date'). Propius' liabilities under its existing aircraft lease agreements will be mitigated and subsidised by SA as Propius will enter into a sub-lease of the aircraft with SA for a period from the date of completion to the Lease End Date for which it will receive total lease payments of approximately GBP14 million. Under the sub-leases, SA will become liable for the ongoing maintenance of the aircraft from the completion date including return conditions at the Lease End Date. Propius will therefore be responsible for total lease payments of approximately GBP9 million after receipt of the sub-lease payments and in addition will pay a sum of GBP15.5 million in April 2023, being the break fee under the existing leases. Ancillary costs associated with the break fee such as hedging and related costs may also be payable at that time.

The obligations of Propius under the leases will continue to be supported by a parent company guarantee from Esken until April 2023. Subsequent to that date, any continuing use of the aircraft will be a matter between Ettyl and the lessor directly and it is anticipated that Propius will then become a dormant company.

Ettyl will also acquire Esken's entire shareholding in Stobart Air (UK) Limited, the owner of CLDA, for a cash consideration of GBP15 million plus the value of any cash on the balance sheet. The sale of SA and CLDA are inter-conditional and so the net effect of the two transactions is that the consideration of GBP15 million in respect of the sale of CLDA will be offset against the obligations in relation to the pre-completion liabilities and completion payments due to Ettyl from Esken in respect of the sale of SA at completion. Satisfaction of the completion conditions is required such that the sale of both SA and CLDA complete on the same date.

Should either CLDA or SA be sold subsequently resulting in a gain to the buyer's equity in those assets, Esken will be entitled to an additional consideration of up to GBP30 million in the first 12 months and up to GBP20 million in the second 12 months following completion.

Conditions to completion

The completion of the sale of both SA and CLDA is subject to a number of conditions including consent from various key stakeholders and commercial counterparties to Esken, SA and CLDA including consent from the lenders under Esken's bank facility.

Financial Impact of the transaction

The resulting effect of the SA transaction for the period up to completion will be shown as discontinued operations in the results for the year to 28 February 2022. The transaction to dispose of SA is expected to result in a loss on disposal of approximately GBP8m after professional fees. The disposal of Stobart Air (UK) Limited, which owns Carlisle Lake District Airport, for proceeds of GBP15m, is expected to generate a profit on disposal in excess of GBP10m. Both results are subject to any year end February 2021 audit adjustments.

The cash impact of the transactions in the following three financial years will be as follows

                        FY22   FY23   FY24 
 Total cash outflows 
  - GBP'millions        16     9      24 

Esken has pre-existing parent company guarantees under the aircraft leasing arrangements which at the completion date will be approximately GBP69 million in gross terms, with these reducing by c.GBP2 million per month until April 2023. On the basis that SA and Ettyl fulfils their respective obligations under the transaction agreements and sub leases through to April 2023, the maximum potential liability of Propius will be up to GBP49 million. The settlement of these obligations is contained within the cash flows set out above. In the event of a failure of SA prior to that date Esken would seek to agree alternative arrangements for the continued use of the aircraft with another party which would mitigate any residual exposure.

David Shearer, Executive Chairman, Esken said

"I am pleased to be able to announce these transactions today which are in line with our stated strategy at the time of the successful capital raise in June 2020. This has been a difficult and protracted process to conclude given the impact of the pandemic on air travel. Stobart Air remains a critical part of connectivity between Ireland and the United Kingdom and I am pleased that we have managed to secure the future of that business and its 480 staff under a new owner with ambitions to grow its network of routes. The sale of the airline presents a significantly better financial outcome than that resulting from a closure.

Our operations at CLDA were peripheral to the main focus of our Aviation business at London Southend Airport and we have taken this opportunity to tidy up our portfolio of businesses at a fair value in current markets allowing us to minimise future cash burn and avoid management distraction. I wish the new owners of both these businesses every success in the future.

The completion of these transactions will allow management to focus on the core operations of Stobart Energy and London Southend Airport, along with the aviation services business. I will report further on our strategic objectives for these businesses when we release our results for the year to 28 February 2021."

The Disposal described above constitutes a Class 2 transaction for Esken for the purposes of the Financial Conduct Authority's Listing Rules. Due to Stobart Air being acquired on 27 April 2020, it did not contribute to the Group's full year results for the year ended 29 February 2020. Stobart Air's reported gross assets were GBP28.6m at 31 August 2020. For the full year ended 29 February 2020, Stobart Air (UK) Limited contributed a loss before tax of GBP24.3m and gross assets as at 31 August 2020 were GBP9.1m. Any proceeds arising will be used to meet the cost of the legacy obligations retained under the transactions and thereafter to reduce the Group's net debt position.

All figures are shown in GBP and have been converted where applicable at USD1.37 and EUR1.15.


Esken Limited 
 Charlie Geller, Communications Director 
 C/O Tulchan Communications 
  Tulchan Communications                    020 7353 4200 
  Olivia Peters/David Allchurch    

This announcement contains a number of "forward-looking statements". Generally, the words "will", "may", "should", "continue", "believes", "expects", "intends", "anticipates", "forecast", "plan" and "project" or in each case, their negative, or similar expressions identify forward-looking statements. Such statements reflect the Company's current views with respect to future events and are subject to risks, assumptions and uncertainties that could cause the actual results to differ materially from those expressed or implied in any forward-looking statements. Although the Company believes that the expectations reflected in such forward-looking statements are reasonable, no assurance can be given that such expectations will prove to have been correct. Shareholders should not, therefore, place undue reliance on these forward-looking statements, which speak only as of the date of this announcement. Except as required by the FCA, the London Stock Exchange or applicable law, the Company expressly disclaims any obligation or undertaking to release publicly any updates or revisions to any forward-looking statements contained in this announcement to reflect any change in the Company's expectations with regard thereto or any change in events, conditions or circumstances on which any such statement is based.

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April 20, 2021 02:00 ET (06:00 GMT)

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